Superannuation, Binding Death Nominations & Wills
Experienced Wills and Estates Lawyer Rod Behenna discusses the often complex topic of superannuation and it’s impact on your estate.
This can be a difficult area.
The first thing to understand is that you do not own your superannuation – the trustees of the Super fund control it and any benefit is dealt with by them. Your superannuation does not form part of your estate to be dealt with in accordance with your Will unless the Trustees of the super fund decide to do that.
Some (most) superannuation fund deeds allow you to give a nomination to its trustees about to whom you want any benefit paid after your death.
Other funds – and Super SA is a local example – do not allow such a nomination and the trustee will determine who gets the Super. This sometimes causes problems – for example in a second marriage when you want the kids from the first marriage to get the Super but the trustees are obliged to pay it to the second spouse.
A nomination can be binding or nonbinding on the trustees. It must be signed according to guidelines in the deed – normally in much the same fashion as a Will.
Any nomination must be in favour of a “superannuation law dependent”. That is wider than a “tax law dependent” and includes a spouse (including de facto and same sex partner), children, any person financially dependent on you or your estate (known as your legal personal representatives or LPR).
If it is paid to your estate it will be dealt with in accordance with your Will or, if you don’t have a Will, in accord with statutory provisions which can differ from State to State.
If no nomination is made the trustees will decide to whom the Super is paid and in what proportions after they make extensive enquires about all possible beneficiaries. This process could take some time and could result in totally unintended consequences. For example the trustees would have to try and locate and then obtain details of their circumstances from estranged, adopted or ex-nuptial children. If there was an estranged, but not divorced, spouse then the benefit might be paid to that spouse.
Some superannuation deeds say that your nomination is totally void if any nominated person dies before you or is no longer your dependent.
Other deeds say that if a nominated beneficiary dies before you or is no longer your dependent that particular nomination fails and that part is left to your estate (your Will). This can cause problems if you have no Will or if the clauses in your Will produce a result you did not intend – for example if your Super nomination is to two children and one dies before you and your Will says your estate is left equally to your two children or their children if one of them predeceases you then the unintended result would be that the surviving child gets one half of the deceased child’s intended benefit because of the terms of the Will. There may also be taxation consequences.
Depending upon the terms of the superannuation deed, a binding nomination probably lapses after three years. Again the result may be totally contrary to your wishes – for example the benefit could then be paid to a long separated (but not divorced) spouse.
Other problems can arise if you have a self managed superannuation fund (SMSF) with a second spouse as trustee, children from a first marriage and no binding death benefit nomination. If you do not have a Will and if the second spouse decides to give all of the Super to herself (as you might intend to happen) she might be open to the children contesting that as a breach of her duty as administrator of the estate to act in the best interest of all of the beneficiaries of the estate. If you do have a Will leaving everything to the children the second spouse might be able to give herself all of the benefit from the Super fund (which might or might not be your intention).
The interaction of Wills and superannuation is fraught with traps for the unwary so ensure that your arrangements are in place and that the solicitor drafting your Will is fully appraised of your situation and your wishes so that the Will can be drafted correctly.
One possibility is to put a superannuation “hotchpot” clause in your Will to try and achieve equality between your beneficiaries but you must ensure that this does not conflict with your binding death benefit nomination.